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Taxable Amount of Disability Assistance
Payments

Investments in the registered disability savings plan (RDSP)
grow tax-free. The beneficiary will pay tax only when withdrawals
(disability assistance payments) are made
from the RDSP. The portion of each withdrawal that
relates to earnings, CDSG and CDSB is taxable to the beneficiary.

The
taxable portion of disability assistance
payments is calculated as the payment amount (A) less the lesser of

A and

A x B/C, where

A is the amount of the disability assistance
payment

B is the total by which all contributions
to date to the RDSP exceeds the total of the non-taxable portions of all
previous disability payments from the RDSP

C is
the amount by which the fair market value of the property held by the
RDSP immediately before the payment exceeds the assistance holdback
amount.

Example for first lifetime disability assistance
payment:

Disability assistance payment (A) is $12,893 per
year.

This is the first payment, so B is equal to all
contributions to date to the RDSP, or $30,000 (20 years @$1,500).

Total lifetime CDSGs and CDSBs equal $90,000 (20 years
@$4,500).

Total CDSGs and CDSBs in the
previous 10 years equal $45,000.

Fair market value of the RDSP is $296,538.

The assistance holdback amount is $45,000, the total of
CDSGs and CDSBs paid in the previous 10 years.

C is $296,538 - $45,000 = $251,538.

The taxable portion of the disability assistance
payment is

$12,893 - [$12,893 x $30,000 / $251,538] = $11,355.

This is included in the taxable income of the
beneficiary, or if the beneficiary has died, the beneficiary's estate.

The assistance holdback amount of $45,000 would have to be repaid
to the government when the above disability assistance payment is
made. (Canada Disability
Savings Act Regulations s. 5(c)).